Search This Blog

Rajinikanth decides not to enter politics ending 24 year of suspense!!

Today seems to be a day with fast paced developments.  

After the historic victory against Australia in Melbourne, the next news coming out is Rajinikanth has decided NOT to enter politics.  He has given the reason of his poor health for this decision. 

I always felt that Rajini had the best chance to make an impact in 1996 when he gave his voice against Jayalalitha.  But unfortunately he gave the voice for Karunanidhi.  I think somebody tricked him to do that then.  

Even if he had entered now, he wouldn't have made any big impact was my feeling.  Good that he has decided once and for all on this now.  At 70 and deteriorating health, I don't want somebody to make a debut in politics.  Better he spends time in activities he likes to do.  

Will it make any impact on the TN elections slated for 2021? 

Melbourne victory

India wins the second test against Australia.  

The match saw excellent batting performance by Ajinkya Rahane and Ravindra Jadeja.  Ashwin and Md Siraj bowled very well. 

A very satisfying victory after a drubbing in the Adelaide test. 

As somebody wrote in Twitter, Cricket is a team game and individual brilliance can't take beyond a particular level.   You need an able leader, ability to get the best out of the teammates and take crucial decisions.  Ajinkya Rahane did very well as a captain in all these areas.  

Why can't we continue with him as a captain instead of Virat Kohli, at least in the Tests.  Gives Virat Kohli more space to concentrate on ODI and Twenty 20s.  

Rules changing from January 1: Everything you need to know in detail

Posted as received on WhatsApp

 Rules changing from January 1: Everything you need to know in detail

As some rules are changing from January 1, 2021, it is necessary to know about them in detail.

Many rules from cheque payment, LPG Cylinder prices, GST to UPI transaction payment are changing from January 1, 2021. As these rules are linked to everyone’s day to day life, therefore you need to know about these rules.

1. Cheque payments

To keep a check on banking frauds, the Reserve Bank of India decided to introduce the ''positive pay system'' for cheque payments. In this system, there may be a requirement of re-confirmation of the key details for the payments above Rs 50,000. This rule of a positive pay system will come into effect from January 1, 2021. The positive pay system facility can be availed by the account holders of their choice. Banks may think about making it necessary for cheques with amounts of Rs 5 lakh and higher.

*2. Contactless card *transactions limit**

From January 1, the RBI has said to increase the limits from Rs 2,000 to Rs 5,000 for contactless card transactions and e-mandates for regularly occurring transactions through cards and UPI. The move by RBI is to enhance digital payment. This will ensure a safe and secure manner, especially during the Covid-19 pandemic. RBI Governor Shaktikanta Das has said that this will depend on the mandate and discretion of customers.

3. Car prices

‘Maruti Suzuki’ India and ‘Mahindra and Mahindra’ will increase vehicle prices from January 1 to cope up with the impact of increasing input costs.

4. WhatsApp to stop working on select phones

Famous messaging service WhatsApp is going to withdraw support from some platforms from January 1. WhatsApp page has mentioned the operating systems that it provides support for and recommends using these devices: Android running OS 4.0.3 and newer; iPhone running iOS 9 and newer; and select phones running KaiOS 2.5.1 newer, including JioPhone and JioPhone 2.

*5. Landline to Mobile **phone calls*

**You will be required to prefix '0' for making calls from landlines to mobile phones in the country. The telecom department has asked telcos to work on the required infrastructure by January 1 in order to implement the new system effectively. This move will create enough numbering space for telecom services.

6. FASTag for all four-wheelers

The Union Ministry of Road Transport and Highways has made FASTag mandatory for all four-wheel vehicles from January 1, 2021, through a notification. FASTag will be mandatory for M and N class four-wheelers sold before December 1, 2017. The Central Motor Vehicles Rules, 1989 were also amended for the same. The notification regarding this was issued on November 6, 2020.

7. UPI Payment

From January 1, 2021, the users may need to pay additional charges while making transactions from Amazon Pay, Google Pay, and Phone Pay. National Payments Corporation of India (NPCI) will impose an additional charge on UPI Payment Service (UPI Payment) run by a third-party app beginning from January 1. NPCI has applied a 30 percent cap on third-party apps starting the new year. Paytm will also need to pay this charge.

8. Google Pay web app

Google Pay is all set to kill the user to user payments facility on its web app and add a fee for instant money transfers in January. Till now, the customers were able to manage payments and send money over the mobile app or from According to the recent notification of Google, the web app site will no longer work from January 2021.

9. LPG prices

On the first day of every month, the oil marketing companies revise the prices of LPG on the basis of crude rates in the global markets.

10. GST-registered small business

The businesses with a turnover of up to Rs 5 crores will require to file only 4 GST sales returns, or GSTR-3B, instead of 12 ( now) from January, as per PTI. This change would impact about 94 lakh taxpayers, i.e. about 92 percent of the entire GST tax base. Now, small taxpayers would be filing only eight returns (four GSTR-3B and four GSTR-1 returns) yearly

 Implication of new 26AS Form of Income Tax


On 18July20, Income Tax Dept informed that new 26AS form is implemented

New 26AS will now include certain high value transactions explained How does it impact u is what this explains

First let's start with basics

Q: What is Form 26AS Form?

Ans: Till now Form 26AS, was a statement that IT dept used to provide u to capture

(a) TDS deducted from u (For eg: Ur company deducting TDS on ur salary)

(b) TCS: Tax collected at source (house property etc)

Now what has changed?

Now Form 26AS, will have a new section known as Section E

Section E will also capture certain high value transactions that you do in a financial year

So at a glance it will help u see you large txns in a year. And we explain below which txns

Q: Tell me which txns & what do u mean by large txns (how large?)

Ans: For eg: if u invest in a mutual fund > 10 lacs in a year. That is a large txn and it will be captured in this statement

Not a single txn, but cumulative in a year if in a single MF u invest > 10 lacs

Q: Ok I get it, tell me more which all txns will be included?

Ans: 14 types of txns are included and here is the full list:

1) Fixed Deposits together in Bank > 10 lacs in a year

2) Credit Card Bills > 10 lacs (in a year) if paid by cheque

and > 1 lacs if paid by cash

3) If u buy bonds > 10 lacs in a year

4) If u buy shares > 10 lacs in a year

5) If u tender shares for buyback > 10 lacs in a year

6) If u buy Fx > 10 lacs in a year

7) If u buy MFs > 10 lacs in a year

8) Real Estate > 30 lacs

9) Purchase of Bank drafts > 10 lacs with cash

10) If u deposit cash in savings bank account > 10 lacs

11) Cash deposts or withdrawals from current account > 10 lacs

And some other routine ones (related to demonetisation)

All this will be shown in Section E in your Form 26AS of your previous years also!

Q: How does all this impact us?

Ans For honest tax payers, it is actually beneficial. Now we have a single point source of all large txns which will help us.

For those who evaded taxes - earlier also IT dept knew it - Now it is putting it in their face and telling IT knows

Q: So does it mean u should do txns < 10 lacs. For eg: Make a FD < 10 lacs or  split it to keep those below 10 lakh?

Ans: First, this is not single txn value. Anyways all ur FDs (or other txns as detailed above) will be cumulatively (in a single bank) looked at,

So no point trying to make smaller txns or splitting it.

Q: I am worried will IT dept harass me now, if I spend too much on credit cards?

Ans: Again, honest tax payers need not worry.

But if someone is not paying any taxes saying negligible income but spends > 10 lacs, IT dept will surely Q him on how he can spend so much

Or for eg:, if u say u hv negligible income in ur tax return and make FDs in Bank of > 10 lacs or invest in MFs > 10 lacs , be ready for Q on without income, how can u save so much

In fact for last year, based on this data, people hv been identified already by IT dept

Q: Where can I check my Form 26AS?


1) Log in to ur account

2) Go to My Account -> View Form 26AS

All previous years is already be updated with this. So u can look at it for the past

For 2019-20, data is yet to be updated

Hope it helps!

Kindly check once with any Govt Notifications/Circulars

8 possible reasons why equity markets have moved up

It’s a puzzle for everyone over the last 2-3 weeks.
Why the markets are going up when we only see difficult things around like the horror stories of migrant labour, increasing number of Covid19 cases, bankruptcy of big companies in USA, riots in USA Cities etc.,
We also don’t know exactly!  As you would agree, there can’t be “one reason” which is driving the markets up.
In our view, we see the markets are moving up for a possible combination of the reasons below:
  1. Lockdown is slowly getting released across India and economic activity has started picking up

  1. Some of the sectors are reporting much better consumer demand during the lockdown period contrary to the expectations.For example, the cement demand has held up at 50% to 75% over the last 1 month, though technically we had lockdowns.  There are also reports of AC sales remaining steady in various parts of the country

  1. FIIs are buying big time in the markets over the last 2 weeks.With so much stimulus measures announced across the world, the money from western economies was expected to move in search of higher returns from riskier assets like equities.  The heavy FII buying in Emerging Markets like India is happening now.  Reversing their three-month selling trend, foreign portfolio investors (FPIs) infused a net Rs 20,814 crore in Indian equities during the first five trading sessions of June.

  1. Last calendar week of the month is usually the derivatives expiry week.Anticipating a possible correction, many traders would have shorted the market (that is, selling the stock and index futures at a higher price and buy back at a lower level to make a profit).  But with the markets not going down as expected, there would have been a rush to close the short positions and that leading to further price increase.

  1. The stronger-than-forecast May U.S. jobs report.When there were expectations of further job losses, the reports came in with job gains

  1. Over the weekend, an agreement was reached by OPEC+ (group of Oil producing nations) to a one-month extension of its record output cuts.This will lead to more stability in the oil prices and in turn would lead to less pressure on the oil producing countries finances.

  1. Recently Government of India raised the foreign investment limits in domestic companies.  As a result of this move, the weightage of Indian stocks in global tracking indices like MSCI are expected to increased resulting in additional inflow of USD6.5 billion over the year.  The equity markets anticipating the fresh inflows from FIIs are pricing it higher.  

    8.  Indian Meteorological Department has predicted a normal monsoon for this year, which can positively impact the rural economy.  The rural economy can do better than the urban. 

    Always remember:

    -       Equity markets discount the future. They don’t look at the past or present.  It is always forward looking
    -       In the past, many a times, Equity markets have bottomed out ahead of the actual economy bottoming out.  It is by no means an assertion of bottoming out in the current scenario but only reflects the collective wisdom of the market participants
    -       Equity markets surprise most of the participants most of the time, both positively and negatively

My Rendezvous with Athivaradar, which never happened :(:(

I after waiting for more than 38 days decided to go to Kanchipuram for the Athivaradar darshan.  It was decided that a week day, preferably in the middle of the week would be an idle choice as it would result in lesser crowd.  Also, we were told that its better to be in the queue during the middle of the day rather than going very early in the morning.

We chose a Wednesday and started to Kanchipuram in a hired cab.  After reaching Wallajabad, we started facing the traffic bottlenecks and diversions to accommodate the surging incoming traffic in to Kanchipuram.  We were asked to be stopped but our experienced driver managed to sneak us through up to VIP entrance point.  We got down and thanked our stars that we were not stopped at Wallajabad which is a good 15 kms before Kanchipuram.

The real struggle started the moment we joined the queue.  There was no one to advise the crowd.  We started in the queue at the fag end but saw many casually walking past us to join the queue in the front.  Naturally, as agitated, we asked a Policeman why it is happening.  He coolly said, you also please walk up to the front and join the queue.  First learning, the queue system for dharma darshan has no sanctity.  Its free for all till you cross the first 500 meters or so.

So, we also walked some 300 Mts and managed to join the queue.  But it is really pathetic when we heard that those people were standing from 7.30 am in the morning, while we landed at 12.30 past noon.  Anyways, we thanked our stars praising ourselves that we managed to save at least 5 hours by making this smart move forward.

As in any public religious activity, the crowds are unbelievable.  This is just the beginning of the queue to get closer to the entrance to the temple.  But there is no proper communication and no one knows how long will it take to move closer to the temple.  Rumors were flying thick and fast and there were news like a death within the temple etc. , It turned out that actually a devotee has passed away inside the temple.

We were pushed and pulled in all directions inside a barricaded area.  Every row would have anywhere between 15-20 people and with no space to move or bend.  From 1 pm this comedy show continued for another 3 hours.  Yes, 180 minutes of constantly being pushed and pulled.  I don't know how people manage to live in such peace and calm while they were in the queue.  While inside the queue, tempers frayed multiple times for people near us but quickly got extinguished because nobody is doing anything to anybody intentionally.  It was sheer madness to be in the queue.

I for some reason was really maintaining my calmness for the major part of the first 180 minutes.  We did have discussions among ourselves, should we continue standing in this queue or get out and go back home? We convinced ourselves that this is just a temporary one and once we move closer to the temple, it will be a smooth ride.

We were moving forward at a snail pace, literally like 10 meters every 30 minutes are so. We could see the Gopuram from a distance and we thought once we go closer to the gopuram, we will be gliding smoothly.  After waiting patiently for 180 minutes, we had covered a distance of 350 meters.  Yes, it took 180 minutes! Towards the end of this agony filled 3 hours, I started cursing myself as well as started chiding her saying she didn't enquire properly.

Then from a barricaded area we were led in to an open shed where there are blocks manned by Policemen.  You have to move from one block to another as a group.  It looked like a much easier thing to do.  But we again had our self doubts and gave another bout of curses to my wife.  To her credit she maintained composure and said we can leave if I find it tough.  I thought about it and believed that we have already endured 3 hours of agony and may be another 3 hours, we can see the deity in full glory.

So, we continued to move from one block to another and typically it takes 10 minutes to move from one block to another.  The first shed we entered had around 12 blocks and it approximately took almost 2 hours.  Then we were put on to the second open air shed, which had 15 blocks are so.  But luckily, we cleared the second block much faster than the first.  In another 60 minutes we are on the way to the temple.  The ecstasy knew no bounds and we were under the impression that another 60 minutes we should be done with the darshan.  Mind you, we were already in the queue for more than 6 hours now.

When we reached the East Mada Street, to enter the queue, we had to walk another 500 meters and again people are blocked in sheds.  We waited for another 20 minutes or so.  Even my wife had become little anxious by then.  We asked around how long it would take to see deity.  The estimates varied from 6 hours to next day morning.  We had to take a call at 6.45 in the evening, do we continue to stand in this chaotic situation or exit the queue.

I left the decision to my wife, though I prayed she says lets get out.  She said that, and we happily exited the queue.  We had to walk back another 30 minutes to reach the car.  But it didn't look like a pain.  My rendezvous with Athivardar, which never happened!  Varada, I will come and see you soon!

Points to note:
1.  Crowd is unbelievable.  The day we were there it was estimated to be upwards of 3 lakhs.
2.  Queue/crowd management is absent for the first 500 meters or so.  Its free for all.  If you are able to jump queues, you can do it.  People may curse, but you shouldn't worry about it.
3.  The number of policemen to the crowd is abysmally low.  For the first 300 meters, there were at least 20,000 people and the total policemen wouldn't be more than 20!
4.  No water or snacks available while in the queue.  You can carry your own snacks but I am not sure even if you will be able to open and eat.
5.  You have to leave your slipper in your car and go.  So, be prepared to walk miles in barefoot.
6.  The floor is full of small stones, particularly in the open air shed area.  It pains to walk on them after standing continuously in this crowd for more than 3 hours.
7.  It is not worth giving it a try, if you are weak bodied, diabetic or blood pressure person.
8.  I am really astonished by the discipline of the crowd.  What really drives them to stand in a queue for more than 12 hours to have a glimpse of Athivaradar for 1 minute!

PS:  I truly believe there is God because the Athivaradar vaibhavam 2019 has gone off for 39 days without any major issues in spite of all the shortcomings and the quantum of crowd.  Its truly God's Will and nothing more! 

Running and Investing

Action speaks louder than words. Take charge of your investments.

Dear All, 
I have been running regularly for the last 1 year and had to stop it some 40 days back for some health reasons.  Its been some 2 weeks since I wanted to restart my running but couldn't actually pull myself and start it.  I wanted the Christmas to get over then told myself to start by 01st Jan but didn't do it.  
I knew that I need to run to keep myself fit and healthy, but there was something which was stopping me.  There was a great deal of hesitation, indecisiveness, lethargy and lack of motivation.  
I mentally tuned myself and today morning I managed to get up on time and went on to the join my runners group.  I was breathless with the warming up session and felt tired, but I was determined not to let go today.  
I started running slowly but steadily and I finished with 8 kms.  A credible distance coming out of a long layoff, I guess.  Its a small beginning but I am happy I have already begun the journey.  Beginning is already half the battle won. 
I realized that to start (or in my case to restart) something you need to have lot of willpower, focus, guidance and action.  
Thinking about it, I sensed that investing is also similar for most of us.  
As running is good for physical health, investing is good for financial health.  But most of the people I speak to or meet don't have any regular investments.  Unfortunately, investing gets pushed to the bottom of the "to do" list for various reasons like lack of time, knowledge, discipline or focus.  Lot of money is left idle in Savings Bank account or Fixed deposits.  
A simple monthly SIP is more than sufficient to start your investments and bring in the discipline.  Can you believe, a small SIP of Rs10,000 per month can createwealth of Rs2 crores over a 20 years period.   
Get over the inertia and start right now.    If you think, you would be better off with an advisor guiding you, take the help of one.  He not only helps you to identify the suitable investment options, he nudges you, prompts you and pushes you to take actions.  Action speaks louder than words.
Lets start the New Year with new determination to take charge of our finances.  All great journeys start with a first step.  Take the first step now! 
Wish you all a very Happy and Prosperous New Year 2015!!
Warm Regards, 
M. Venkateswaran, A.C.A., CFP CM 
É 9841 567 379
Financial Planning Investment Services |  Insurance Advisory

Happy New Year 2014!

Wish all the readers a very happy, healthy and prosperous new year 2014!!

The last year 2013 was not a great year for the blog.  I have hardly spent time writing anything since March'13.  I guess I would spend more time in 2014 reading and writing more.

Happy New Year 2014!!

ICICI Prudential Life Insurance uses Service calls to churn ULIPs/ULPPs

I have been recently receiving “service”calls from ICICI Prudential Life Insurance Company informing me that their Relationship Manager wants to meet me to discuss about my existing policies with them.  After couple of calls, I yielded to their request to meet the Relationship Manager with the condition that it shouldn’t be a sales call.  They agreed and their Relationship Manager met me yesterday morning.

A short introduction about my investment in ICICI Prudential Life Insurance.  I hold ICICI Prudential Lifetime Pension plan with an annual subscription of Rs10,000 for the last 9 years. 

The first question he asked on seeing me was if I am software professional.  I said no. I don’t know if they are soft targets.  

The meeting, a service call, started with the mention by the RM that I should stop paying the premiums on my existing policy and should invest in a new policy.  The beautiful reason given by the RM was that they have launched a new equity fund where the NAV would be only Rs10 per unit compared to my scheme where the NAV would be Rs78 per unit.  I couldn’t believe what he was saying the first time because this lower NAV is one of the oldest tricks in the market place and I didn’t think ICICI Prudential would do this after so many years.  But he further emphasized that I will get more units by taking a new plan.  This is an outrageous suggestion because if the equity markets perform well, the NAVs would move irrespective of the current value. 

Then RM told me that the new “Maximiser” fund option would have portfolio changes every 15 days compared to portfolio changes in my old “Maximiser” fund, which has 30 days.  This is again totally wrong information.  Here, what he is talking about his portfolio disclosure and portfolio changes.  The poor guy doesn’t understand this difference and tries hard to sell this as a unique feature of the scheme.

I told him politely that I am not keen on that idea and happy continuing with my existing policy.  He tried hard to sell me this idea of lower NAV and frequent portfolio changes but after sometime I had to cut him short.   When you stop premiums on the old policy and take up a new policy, then you end up paying lot more charges.  ULIP/ULPPs being front loaded products would be able to produce returns only when you stick on to them for longer tenures.

What really annoyed me is that ICICI Prudential Life uses a service calls as an alibi to meet their old clients and encourage them to churn products.  This is nothing new in Insurance industry but this happening in an era where mis-selling of financial products by financial product distributors are being looked upon very seriously by the regulators. 

Secondly, the level of understanding the Relationship Manager has with regard to his own company’s products are poor.  He could never understand how the equity market and returns function. 

I am not sure how many thousands of gullible investors have fallen prey to this gimmick of lower NAV and therefore higher units and switched to newer plans.  This is an outright fraud.  I know about ICICI Prudential Life because I own a policy with them but there may be many other people like this in the market.

This brings me to an important point of the need for understanding financial markets and how your investments work.  You need to spend time and energy to understand them or you should consult a reliable Financial Planner/Advisor before buying these kinds of products.  

Gold – Are you a bull or a bear?

Gold has corrected big time over the last 2 trading days and giving shivers to gold bulls.  Is it the end of the bull run in Gold is the common question in the minds of investors?  

What should investors do now? It depends on the nature of the gold holdings one has.  If it is held for consumption purposes, then there is nothing to panic.  Continue to enjoy wearing that necklace or bangles and it is possible that you can now wear it at least now without the fear of being robbed, due to sliding gold prices!! 

Jokes apart, but, if you have been buying gold as an investment asset and that do overdoing it, then you seem to have a problem.   The stress is again on overdoing it.  If you have balanced portfolio allocation, then this price fall should not make you lose sleep. 

If you are somebody who has no exposure to gold at all, then you may use this price correction to start buying like me.  Remember to use the Systematic Investment Plan route in buying gold now, if at all, you are buying. 

This price correction like corrections in other markets, reinforces, the key fact that asset allocation is the most important thing in portfolio construction. 

If you have limited your gold exposure to, say, a maximum of 10-15% of your portfolio size, then this 10% correction doesn’t make any big impact.  Your portfolio value would have gone down by say a maximum of 1.5%.  This 1.5% erosion in portfolio value is not a show stopper in anybody’s portfolio. 

But at the same time, if somebody has say 60% of their investment in gold, then this 10% correction in prices should have dented the portfolio to an extent of 6% or so.  Some may lose sleep on this.  

So, now the obvious question is what he or she should do now? At this moment, there is no clear answer honestly.  The price of gold may recover from here or can fall further accentuated by covering of long positions by gold speculators across the globe.  If you feel you have overweight on Gold currently in your investment portfolio, then you may want to use the rallies to sell in smaller lots.  Just like you are planning to sell,  most of the other gold investors would also be planning as well!! So, to me, this price correction may continue for some more time. 

Let truth be told.  Nobody can predict it with certainty tomorrow’s price!

 You should take this as a reminder to start balancing your portfolio across asset classes.  

A well defined asset allocation is the key to building a solid portfolio in the long run.  

Happy Investing!

Overloaded On Reading

I can never claim that I am a voracious reader.  But in the last 3 months or so, it has so happened, that I have been reading continuously.  Practically thats the only thing I have been doing whenever free at home.  It has reached such a stage that my son told me yesterday that I better close the book I was reading and see whats happening around me. 

The moment I decided to start something one my own, I decided to read a lot more than I was used to, at least in my core area of operations, Personal Finance.  Naturally, when you are on your own, you need to be well-informed in your core area of expertise.  Personal Finance sounds very simple but I can tell it extends way beyond somebody's imagination.  You need to read about the products and the latest developments in the field of Mutual Funds, Deposits, Banking, Taxation, Investments, Real Estate and the list doesn't end.  So this part takes away most of my reading time. 

Then comes the long pending list of books, which I have bought and kept it aside for reading.  I started reading Ponniyin Selvan, the Tamil epic novel by Kalki.  It runs for about 2000 pages.  I bought this from Vikatan Publication in Jan 2012.  It has taken a sweet 14 months for me to start reading it.  I started off slowly but the plot thickens with every page and I got addicted to the novel.  For the last one month or so, I have been reading only this!! I am in the last part of the book and expect to finish it by end of this week.

In the interim, I managed to read two books of Subroto Bagchi, the High Performance Entrepreneur and Go, Kiss the World! 

If this is not enough, I get everyday 4 newspapers to read.  It starts with The Hindu, Business Line, TOI and Dinamalar.  I don't have time to read all the four and have restricted myself to reading The Hindu and BL. 

The agony doesn't end here.  We have subscribed to two lending libraries.  Out of which, one library brings magazines to your doorstep every alternate day.  The magazines we subscribe like Ananda Vikatan, Junior Vikatan, Kumudam, Week, Nanayam Vikatan etc., has to be read and returned within those 2 days.  This adds tremendous pressure to complete the reading in that time. 

The other library is one where you have to go and pick up books.  Considering all the above, I have been delaying picking books from this one. 

The next 6 months is going to be tough for me with the number of must read books is still around 10!

FMPs - Alternate Investment to Bank Fixed Deposits

This time of the year, you see lot of FMPs hitting the market.  Wondering what is FMP!

FMP stands for Fixed Maturity Plans offered by Mutual Funds in India.  Mutual Fund houses collect money through an FMP scheme and lend that money to borrowers for a fixed maturity periods or buy commercial papers or bonds which matches with the scheme maturity date.  The FMPs are debt instruments and they dont have any equity exposure at all. Also, the FMPs would invest in rated securities which gives additional comfort as far as the quality of credit instruments held by the FMP scheme.

It is being positioned as an alternative to bank fixed deposits by the fund houses.   Yes, FMPs are an interesting alternative with highly tax efficient structure due to indexation benefits on Capital Gains.  We will see how this beneficial from a tax perspective.

The process works like this.

What happens in a bank fixed deposit?
You invest Rs10000 and receive back Rs11000. The difference between the original investment and the maturity value is treated as interest income and taxed as "interest from other sources" in case of bank deposits.

What happens in a FMP?
Taking the same example above, the amount invested is considered as the cost of purchase of a financial asset, in this case, mutual fund units and the maturity amount is taken as the sale consideration.  So, the difference between the purchase price and the sale consideration is treated as profit on this asset.

Whats the big deal about this?
When it is treated as interest, it gets added to one's taxable income and get taxed at the applicable income tax rates of the individual (in case of bank fixed deposits)

When it is treated as profit, then the Capital Gain provisions kick in for tax calculations.  As you may be aware, Capital Gains have preferential tax treatment and the highest tax rate is 20% which is lower than the 30% tax rate for general income tax calculations.  Also, you get indexation benefit from financial assets held more than 1 year.  The beauty is if it is held across two different financial years, you get double indexation benefit.  For example, you purchase a 390 days FMPs on 10th March 2013 and it will mature on 05th April 2014.  So, in this case, you will get indexation benefit for 2 years, that is, for FY 2013-14 and 2014-15.  This is called double indexation.

Can it replace the Bank Fixed Deposits completely? 

Okay, then the moot question is can it completely replace the Bank Fixed Deposits in one's portfolio.  The simple answer is NO.  

The following are the reasons why you need to maintain a balance between bank fixed deposits and FMPs:

Liquidity:   The liquidity provided by bank fixed deposits are unmatched currently by FMPs . FMPs are close ended instruments which are listed on the stock exchanges but the volumes are not very encouraging.  For that matter, trading in debt instruments in India is still at a very nascent stage putting at little risk the liquidity of FMPs.

No up front disclosure of Interest rates:  Secondly, there is no guaranteed interest rates by the Mutual Fund houses in respect of FMPs.  Bank Fixed Deposits disclose the interest rates up front but in FMPs it can not be disclosed by Fund Houses due to SEBI restrictions on the same.

Opaqueness in FMP scheme holdings:  It is not disclosed by the Fund House prior to your investment where and which instruments they would be subscribing to.  As such, you have to go with the stated objectives in the Key Information Memorandum of the scheme.  But having said that, I would not give too much weightage to this argument because even banks don't disclose where they invest or lend at the time of taking deposits from the investor.

Suitability of FMP:

Who should invest in FMPs?

1.  People who are in the highest tax bracket as it provides tax efficiency

2.  Investors who have adequate bank deposits to meet emergency situations and looking to diversify beyond bank deposits

So are you looking for tax efficient alternative to Bank Fixed Deposits?  Look no further than FMPs.

Please feel free to write back to us ( if you require any further information on FMPs or help in making investment in FMPs.

New Year! New Beginnings! New Hopes!

Dear Readers,

Wish you and your families a very happy, peaceful, joyous and prosperous New Year 2013!!!

As we start the new year, I want to do two things.  One look ahead and see how 2013 is going to be for me personally and sit back and analyse how 2012 was.

In this new year I begin a new journey as an Entrepreneur.  I have started my Personal Financial Planning and Investment Advisory Consulting practice based in Chennai.   This is a very different experience than working in a corporate, which I did for close to 15 years.  The decision to take it up full time is a well-thought out decision over many months, if not years.  I have been passionate personal finance for many years now and this advisory practice is a logical extension of my passion.  When you convert your passion into business, I think you will be motivated to give your best.  That's exactly the reason why I have embarked on this journey of entrepreneurship in the area of my passion.

The last 2 months have been spent on setting up the infrastructure, establishing connects with the people from the Financial Services industry in Chennai, working on creating the product to be offered to the clients, evaluating multiple software to be used in the business.  All these things I did along with the actual work of advising existing and new clients, which led to too little time for other things.  I couldn't concentrate and write the blog posts exactly for this reason.

Now with all things settling down and me turning full time entrepreneur, I believe I should be able to write more frequently both on this personal blog as well as on my business blog,

The regulatory challenges in the financial advisory business is the biggest of them all, which I, as an individual don't have any control.  So, I will not unduly worry about it.  The revenue uncertainty, constant need to identify and convert prospects to customers, frequently changing financial products landscape, differing client perspectives all add to the list of uncertainties.  There are definitely lot of uncertainties in this journey but tell me which journey is certain! So I am going to take it as it comes but one thing is certain to succeed, I should give my best at all times!

The year gone by was one of surprises, both positive and negative.  Again, the surprise element is the one which keeps our lives quiet interesting, I guess.   I am not going to fret about the past so would look forward to 2013 with optimism!!

Wish you once again a Happy New Year 2013!!